Crop price guarantees will be at least 1,000 baht per tonne more than current mortgage prices to encourage rice farmers to participate in the new programme, says Ennoo Suesuwan, acting president of the Bank for Agriculture and Agricultural Co-operatives.

The government is intent on changing the current rice mortgage programme to a new subsidy programme to minimise market distortions and reduce the financial and logistical burden of state support programmes.

Under the current system, the BAAC offers loans for each harvest at a set price, pledged against a specific crop. Farmers can choose to either deliver the crops or repay the loan, depending on whether the market price at the time exceeds the mortgage price.

Typically, mortgage prices are significantly higher than market prices, resulting in the government becoming the largest buyer of key farm commodities.

The government wants to shift to a system whereby no delivery of physical commodities is made to the state. Instead, the government will offer outright payments if market prices fall below the support price under an insurance system.

The mortgage programme requires massive state funding. From 2004 until now, the government's debt to the state-owned BAAC to cover crop mortgage programmes reached 178 billion baht.

The BAAC plans to test the price guarantee programme in eight northeastern provinces on up to 200,000 tonnes of jasmine rice paddy.

But the bank would extend the programme if farmers in other provinces wish to participate, said Mr Ennoo.

The prices will be based on production costs plus a profit margin averaging 20%.

Initially, the government will charge no premium for the programme. But farmers may be charged a token premium - such as 0.1% of the insured amount - in the future to cover insurance.

The government's potential saving is huge. Guaranteeing jasmine rice paddy at 14,000 baht per tonne, for instance, would cost the government 400 million baht for covering 200,000 tonnes if market prices fell below the insured price by 2,000 baht per tonne.

Under the mortgage programme, the government's cost in this situation would be 2.8 billion baht - the mortgage price multiplied by the amount of rice pledged under the programme - although whether the state eventually gains or loses money depends on the rice's eventual sale price, after storage and logistics expenses are included.

In the interests of transparency and to safeguard against corruption, farmers seeking a price guarantee for their crops would be required to register for the programme, said Mr Ennoo.

BAAC officials will be responsible for verifying farmers' claims, including the commodity to be guaranteed, the farm area and the amount harvested.

Price guarantees are to run concurrently to the price mortgage programme for at least two to three years.

Source: Bangkok Post